Combine Credit Cards To Earn Up To 4% In Rewards

by Guest Blogger on 2010-07-058

Credit card companies generally charge merchants something like 2% – 2.5% in interchange fees or swipe fees, plus they’re currently under pressure by Congress to reduce these fees. So it should stand to reason that paying you more than 2% back on your rewards card would start to eat into their profit margins. This is why the “industry standard” amongst rewards cards is to pay you around 1% back, with 2% cards being the exception.

Well it turns out that if you “play your cards” right, you could actually eke out something closer to 4%! Following are some tips from a credit card nerd on how to game the system.

Don’t be afraid to leverage your good credit and take advantage of loopholes that exist with regards to credit cards. Your credit card company wants to skimp on the rewards, but also wants to trick you into thinking you’re getting a much better deal. That way, they can profit every time you swipe the card, even though you pay your balance off every month and don’t pay interest.

But you can “beat the system” in two ways:

  • Capitalize on cards offering “teaser” categories, like 5% on gas.
  • Sign up for rewards programs that serves as loss-leader marketing for other products.

Combine Credit Cards To Earn Up To 4% In Rewards

Loophole #1: Take advantage of cards that offer a generous “teaser” reward category.
Some common derivatives of this “teaser” credit card include: Earn 5% on gas, earn 5% on restaurants, or earn 3% on gas and groceries, all while earning 1% everywhere else. Card issuers count on users being enticed by the big numbers and hope that their customers don’t actually do the math to determine how much of their spending will actually fall into these categories. The issuers assume that the average person will end up earning less than 1.5% rewards over all, so they still make good money despite the teaser.

But if you are smart about combining a few cards with different teaser categories, you can really milk each 3% – 5% card to the fullest, and drastically increase how much of your spending is earning you maximum rewards.

Some cards that offer these categories include:

Credit Card
Rewards Type
Citi Dividend Platinum Select MasterCard Cash Back Up to 5% cash back, No annual fee
Chase Freedom(SM) Visa – $100 Bonus Cash Back $100 Bonus, 5% cash back, No annual fee
Citi ThankYou Preferred Card Point Rewards Rewards card, No annual fee

Note that the terms for these cards may be subject to change, and we’ve listed them for illustrative purposes.

Visit our Rewards Cards section, where we maintain a comprehensive list of these cards.
Get more information on rewards cards.

Loophole #2: Take advantage of offers where product marketing is more important to the issuer than profitability.
Some companies issue cards that pay higher reward rates than couldn’t possibly be profitable. This is meant to lure you into buying something else from them that is much higher margin, so in the end they still make money off of you.

Almost every card that pays 2% or more in rewards has such a story:

  • GM and Subaru are more concerned about customer loyalty and car sales than credit card rewards, and thus are the only companies who offer a flat 3% reward rate.
  • Schwab and Fidelity are in the money management business, so their model is to charge you fees on the money you have invested, plus fat commissions on trades. As you can imagine, they are more than happy to pay you 2% rewards to get your business and loyalty.

Don’t Be Afraid To Carry American Express and Discover Cards!

It’s true that Amex and Discover aren’t accepted everywhere. But if you’re going to carry more than one card anyway, you should definitely add one of these to your arsenal. The rewards you get from these two cards generally pay above-average rewards, because they charge merchants higher fees than Visa or MasterCard every time you swipe. This is also precisely why some stores won’t accept them, but that’s not your problem.

Here are lists of great offers from American Express and Discover.

The “Knockout Combo” – How To Score 4% Back

  • Get 5% on all your gas and grocery purchases with a rewards card like the AmEx Blue Cash. Caveats: Bonus rate kicks in after you’ve spent a certain amount, and may not apply at warehouse stores like Costco.
  • Get 5% on dining, movies, music, and restaurants with Citi Forward (SM), for the first $15,000 of spending in a year. I’ve heard unconfirmed rumors that all purchases are considered “books”, which is even more valuable.
  • Get 5% on revolving groups of special categories with Chase Freedom and/or Discover More. For example –- from July to September 2010, earn 5% on gas, car rentals, hotels, and airfare for your summer travel.
  • For everything else, use a 3% GM or Subaru card if you think you might buy one of their cars, or choose from one of the 2% cards listed on our aforementioned rewards page.

Please note that this is just an example and rates change quite a bit and can be pretty dynamic. In my case, each year I spend over a third of my credit card bill on restaurants and bars using Citi Forward (thank you, Manhattan). Another third goes to other 5% categories like gas, groceries & seasonal items using Amex Blue Cash, Chase Freedom, and Discover More. The final third goes towards miscellaneous items on my Fidelity Retirement Rewards card.

So what’s my net? 1/3 * 5% + 1/3 * 5% + 1/3 * 2% = 4%

If you have the original AmEx Blue Cash card, note that it only starts paying 5% on gas and groceries after $6,500 per year in spending. It’s the rewards card I own, and when I consider what it gives me, my total is actually closer to 3.7%. However, if I were in the market for a GM or Subaru car, I could make up the difference by using one of their cards on the remaining 1/3 of my spending.

Now get busy exploiting and save yourself some dough!

Interested in learning more about the relationship between credit card issuers and merchants? Find out more about interchange fees and swipe fees here, as well as the steps that are taken by Congress to reduce these fees.

Tim Chen of NerdWallet was formerly a hedge fund analyst specializing in credit card networks and technology companies before becoming a victim of the financial meltdown. NerdWallet is the Kayak for credit card search, and seeks to become the number one source for unbiased online credit card information.

Copyright © 2010 The Digerati Life. All Rights Reserved.

{ 7 comments… read them below or add one }

youngandthrifty July 5, 2010 at 10:48 pm

I love milking my credit cards for cashback or rewards. I find the Starwood Preferred Guest a great card too, it’s not cash back, but you can get flight and hotel rewards.

In Canada, they used to be with MBNA, but now they’re with AMEX.

A good point to remember is that if you have to PAY an annual fee for your card, then it eats away at that 4% return too! =) July 6, 2010 at 4:19 am

I used to always go for rewards or miles on cards but in the last year I have switched back to a cash back card – the AMEX blue. Generally, I am a big fan of AMEX because of their customer service, although I have not really had a lot of bad experiences with any card issuer.

I agree, you can really make these cards work for you. NIce article.

Consumermiser July 7, 2010 at 4:28 pm

These benefits are tempting, but don’t forget that generally when you use your credit cards, you spend/buy more than you would if you were using cash. And of course, if you do not pay off the balance in full, you are paying interest that could be 4%, 6%, 10, 18% or more of your balance. However, I do like the cards with cash back–maybe I will consider dusting off some of my cards?

I used to have a card that paid 1% of my purchases toward my mortgage. Now that was a great deal for me that I could not refuse! They discontinued the program. If you find one these cards, let me know!

Rowena July 8, 2010 at 7:50 pm

@consumermiser – I could use one of that kind of card too!

Well, for me using a credit card is a big burden specially if you are not paying your balances in full each month. So it is advisable to pay your balances each month so you can get the rewards you signed up for.

Silicon Valley Blogger July 9, 2010 at 8:05 pm

I keep mentioning how great it would be to get a hold of a credit card that helped you pay off your mortgage. With all these issuers covering both regular credit cards and loans such as mortgages, I’m not sure why the left hand does not talk to the right. After all, you’ve got Upromise cards that can help you build your college savings.

So if any credit card issuer is listening, let us know if you have a credit card that offers a reward for mortgage paydown and I’m sure you’ll fetch a lot of customers!

Frank July 26, 2010 at 6:27 am

Great tips all around. As long as one pays the cards off before the interest takes a heavy toll, they can actually save you money; a few years ago I would not have thought it possible but now I am using all my cards to their fullest potential.

DGS March 18, 2012 at 8:45 am

Fifth Third Bank offers a MasterCard called HomeOwner Plus that offers a mortgage paydown reward program.

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